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AUCTIONS: Are diesels worth the premium?

Date: 03 April 2009

With the gap between the price of unleaded and diesel having grown significantly over the past 12 months, Tony Rock asks whether it's time to begin buying petrol

While fuel prices may be have fallen again following the extraordinary highs experienced last summer, over the course of the last year the price differential between diesel and petrol leapt from 4.9p per litre in January 2008 to a high of 13.9p in November, according to The AA.

With petrol becoming relatively cheaper, business car managers have been questioning what kind of impact such a differential would have on the resale values of diesel company vehicles.

Price premium

Data from auction company BCA shows that diesel cars enjoyed a substantial price premium over petrol throughout 2008, despite the differential in fuel costs and the fact that diesel cars were sold at a higher average mileage. However, that premium has narrowed in recent months.

"Average diesel values held up remarkably well during the early part of 2008, despite the many economic pressures impacting on the used car market," says Tony Gannon, BCA's communications director.

"Values actually increased during the first quarter, and only started to fall when the fuel price was at its peak. From then on, values followed the rest of the market in falling steadily until late in the year, with the exception of September, which saw a short-lived spike in values.

"Values recovered sharply in January of this year and have continued upwards in February. The price differential in diesels favour remains significant at around £500 (11%), but is noticeably less than a year ago, when the difference was just under £1000 (18%)."

Gannon added: "In contrast, petrol values declined steadily throughout Q1 and Q2, before recovering in September and then falling again in October and November. Petrol prices recovered a month earlier than diesel, however, and have been climbing since last December."

BCA's statistics are backed by the latest Manheim market analysis figures for February, which show that in the upper medium segment the average percentage of the new price achieved for diesel fell 5.5% year-on-year, while petrol recorded a 6% drop over the same period.

There is some disagreement, though, about how much impact fluctuating fuel prices actually have on auction values. Gannon believes it does have some influence.

"What is certain is that there are a number of factors affecting the relative price performance of the two fuel types in the used car market. The price paid by motorists at the pumps is significant, and will affect desirability, but motorists don't consider this in isolation - our research shows that they also value diesel's perceived relative economy in terms of mpg and lower servicing costs."

Masterlease's Eddie Parker, however, has a different opinion.

"We've seen the differential between prices at the pumps widen before and close again and this had no discernable effect on demand and prices at auction, and this time is no different," he says. "Auction prices continue to be driven by the usual factors of condition and mileage and the driver's fuel type preference."

Parker also has a view as to why diesel prices at auction have held up.

"Leasing companies have some influence on demand at auctions by determining the supply of particular vehicles," he begins. "Perhaps because many fleet managers are choosing to extend leases, fewer vehicles are filtering through to auction, so those that are selling are maintaining their value. This is off-setting the expected drop in prices, so auction prices remain relatively stable despite the current climate."

Diesel's future

Whatever the reason behind the current stability of prices, Gannon suspects that future diesel values might well remain steady despite its ongoing popularity.

"As fleets have registered increasing numbers of diesel cars in recent years, it is tempting to suggest that used fleet diesels will continue to get relatively cheaper," he says.

"However, the market dynamics are not that simple. If motorists follow the lead set by fleet operators - as they inevitably do - we could see increasing demand for used diesels matching the rising supply of stock available to the market."